Shares of Molins (LSE: MLIN) jumped 28% last Thursday after it announced a conditional agreement to sell its Instrumentation & Tobacco Machinery division for £30m, with cash proceeds of £27.3m, net of taxes and fees. In the company’s last financial year, the division contributed £38.6m to group revenue, almost as much as its other division (Packaging Machinery), which contributed £41.5m. So, this is a significant disposal and will require shareholder approval.
Big discount?
The sale of the division will considerably strengthen Molins’ balance sheet and cash-positive position (net cash at the last year-end was £0.8m). It will also enable the company to accelerate investment in its Packaging Machinery division and acquire complementary businesses.
The company had net assets of £35.4m at the last year-end and says that the £27.3m from the sale of the Instrumentation & Tobacco Machinery division is similar to the book value of the division’s net assets. Even after the rise in the shares to 101.5p, Molins’ market cap is just £20.5m — a 42% discount to net assets. Put another way, if the shares traded in line with net asset value, the price would be 175p.
Meanwhile, the company says it’s “confident that the Continuing Group’s sales in 2017 are likely to be significantly ahead of last year” and has implicitly guided on £51m. If we apply the 0.78 times sales multiple at which the Instrumentation & Tobacco Machinery division is being sold to the remaining Packaging Machinery division, we get a share price of 197p.
There are execution risks with Molins’ strategy to acquire complementary businesses and the company also has a significant pension deficit. The current deficit recovery plan involves payments of £1.8m a year (increasing by 2.1% a year) through to 2029. Nevertheless, the size of the discount of the share price to my fair-value calculations of 175p-197p persuades me that there is potential for significant gains for buyers of the stock today.
Stamps licked?
Shares of Stanley Gibbons (LSE: SGI) shot up 18% to 13.13p on Friday after it announced an unsolicited approach from private equity group Disruptive Capital regarding a possible offer. However, the shares have retreated to 11p today after a further announcement from the stamps and coins company and an announcement from Disruptive Capital.
Stanley Gibbons had a peak market cap of £179m just a few years ago but is currently valued by the market at just £19.7m after accounting shenanigans, difficult trading conditions, debt problems and an emergency fundraising. On the face of it, there could be value here, because the shares are trading at a discount of 56% to net asset value at the last balance sheet date (30 September) and at just 0.39 times trailing 12-month sales.
However, 30 September is a long time ago and sales were in decline at that time. More recently, the company reported little headroom on its borrowing facilities at 31 March, saying it was “utilising £17.2m out of its total facilities of £18.3m”.
In today’s announcement, Stanley Gibbons formally put itself up for sale, saying further investment is required. At the same time, Disruptive Capital announced it didn’t have key information “to evaluate whether or not to make an offer” and is not making one. Similarly, I think there’s currently insufficient information to evaluate whether the shares are good or poor value at their current level.